Maximum drawdown trading is usually referred to as the difference between the initial balance and the latest account equity. For traders, this is mandatory to know.
In the world of trading, there are many types of reports on the results of transactions over a certain period of time. From these reports, traders can find out information on profit growth, net profit, and of course drawdowns.
But before discussing further, it’s good to know the term drawdown in the world of forex trading.
Regular drawdowns are also known as drawdowns. To be clear, please refer to the explanation of the definition of maximum drawdown trading.
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What is Maximum Drawdown Trading?
Just like the world of investment, forex trading also has many important terms that are usually available in providing reports about trades that occur. One of them is the term about drawdown.
This one term is the decline in value from a single investment or portfolio with the highest to the lowest value according to a certain trading period. The drawdown occurs as a percentage between the next peak and trough.
For example, when forex trading has 10 million and drops to 9 million before moving back to 10 million.
This means that the trading account shows a drawdown or drawdown of 10%.
In short, the maximum drawdown trading is the risk limit that occurs by forex trading in forex transactions. The greater the risk limit, the less good forex trading in real transactions.
For this reason, the maximum drawdown is the percentage of the decrease in the initial capital after the reduction of consecutive losses.
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Drawdown in Forex Trading World
Maximum drawdown will occur if the trade has decreased. But in the investment world, the decline in equity in trading accounts has become a common occurrence.
When conditions like this, you can determine the trough or lowest point before a new high appears.
The high point will return to its original state. This activity can be used by a trading advisor to determine the current risk.
This risk can be seen from the amount of money and the duration that investors need. The existing withdrawals are based on the amount of money in the presentation.
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The Important Role of Drawdown
Actually, the activities carried out by maximum drawdown trading traders are indeed needed. In this activity there are two important elements that need to be considered.
With regards to dropdowns, there are two main things namely money and time. Drawdown risk is quite important for traders to pay attention to.
The importance of withdrawals can be seen from how they affect various investment sites.
As for the time, it refers to the length of time in returning the initial equity after a loss and rising again at a higher number.
Maximum drawdown trading is a risk that will always haunt every trader. So before deciding, you should consider the drawdown in order to get a profit.